How is Off-Plan Buying in Real Estate Different from a Ponzi Scheme?

Real Estate investments have turned out to be the real deal as far as returns as concerned. But at the same time, the sector has turned out to be full of fraud and if one is not keen, they will end up losing all their money and resources.

Before falling prey and ‘throwing away’ all your money to the wrong people, it is important to ensure that you are knowledgeable enough about the sector. Get to understand the different types of real-estate investments which will put you in a better position to pick one which suits you.

Off-Plan buying has been among the most preferred mode of investment currently in the real estate sector. Buying property off the plan is an arrangement where a property buyer buys a property that is yet to be constructed. Off-plan purchasing is a trend that has seen many aspiring property owners acquire their dream properties by putting their money on nothing more than an architectural plan.

When purchasing property using this mode, it should be noted that there are key things to be considered which involve signing of three documents: The reservation form, letter if offer and the sales agreement. With these documents, the buyer will have a binding agreement with the developer just so as to ensure that whatever will be taking place is legally agreed upon.

Property Investors and potential homeowners prefer buying off the plan since it is seen a more affordable and flexible mode of purchasing property other than when the property is already complete or going for an already existing property.

A Ponzi scheme, on the other hand, is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier.

With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.

Here are some common characteristics of Ponzi Schemes:

• High returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.
• Overly consistent returns. Investments tend to go up and down over time. Be skeptical about an investment that regularly generates positive returns regardless of overall market conditions.
• Unregistered investments. Ponzi schemes typically involve investments that are not registered with the SEC or with state regulators. Registration is important because it provides investors with access to information about the company’s management, products, services, and finances.
• Unlicensed sellers. Federal and state securities laws require investment professionals and firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.
• Secretive, complex strategies. Avoid investments if you don’t understand them or can’t get complete information about them.
• Issues with paperwork. Account statement errors may be a sign that funds are not being invested as promised.
• Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying put.

When Venturing into Off-Plan buying, look out for reliable real estate dealers like Cytonn Investments. To learn and understand more about identifying Ponzi Schemes in Off-Plan Buying, Check here.